Atlanta VC fund swept up in fight targeting corporate diversity programs

The renewed conservative push to dismantle affirmative action in corporate America made an Atlanta-based and Black women-founded venture capital firm one of its first targets. But in the weeks since a lawsuit alleging racial discrimination by Fearless Fund was filed in federal court, the assault on corporate diversity efforts has only grown.

The nonprofit American Alliance for Equal Rights followed its lawsuit against a Fearless Fund grant program for Black women by suing two law firms over their diversity fellowships. Similar conservative organizations have targeted major corporations like McDonald’s, Target and Progressive, hoping to chip away at programs intended to help African Americans and other minorities overcome entrenched racial inequality.

“We are inaugural defendants in one of the most defining lawsuits of our time,” said Arian Simone, CEO and co-founder of Fearless Fund, during a speech in August at the 60th anniversary of the March on Washington.

The maneuvering follows the June decision by the U.S. Supreme Court striking down affirmative action in college admissions. Edward Blum, a conservative activist in the trenches of that case, leads the Texas-based Alliance. The lawsuits by Blum’s network and other groups are widely seen as an attack on affirmative action programs in business and are starting to have a chilling effect.

“You take a case like this very seriously because it seeks to strip away fundamental legal protections that Black and brown people have in this country,” Alphonso David, President and CEO of the Global Black Economic Forum and one of the lead lawyers for Fearless in this case, told The Atlanta Journal-Constitution.

A summit hosted by the Fearless Fund attracted hundreds of attendees on Friday, August 18, 2023, when founders Arian Simone and Ayana Parsons welcomed the audience at Atlanta Symphony Hall.

Credit: Kelly Yamanouchi

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Credit: Kelly Yamanouchi

At least one of the Alliance’s lawsuits has already had its intended effect. Morrison Foerster was one of the law firms in the group’s legal crosshairs over their diversity fellowship. In response, the firm changed the eligibility criteria of their program.

‘A chilling effect’

In July, 13 Republican state attorneys general sent a letter to CEOs of the 100 biggest U.S. companies cautioning them to “refrain from discriminating on the basis of race, whether under the label of ‘diversity, equity, and inclusion’ or otherwise.” Five Republican AGs sent a similar warning to the nation’s top 100 law firms the next month.

Organizations are starting to change diversity-focused programs to avoid lawsuits, like the law firm Gibson, Dunn & Crutcher, which changed the language for a diversity and inclusion scholarship, according to Bloomberg Law. Gibson, Dunn & Crutcher is also one of the lead firms defending Fearless Fund.

Business leaders around the country are now thinking about how to protect their companies. The lawsuits were hot topics during panels at the Fortune Impact Initiative conference, a gathering of senior leaders from Fortune 1000 companies held in Buckhead last week.

Former two-time Democratic nominee for Georgia governor Stacey Abrams said the goal of these suits is to use fear around being caught in a legal and political fight to change how companies act.

“Lawsuits are designed not for victory, but for a chilling effect,” she said at the conference. “The chilling effect is when you decide to unilaterally disarm for fear of being attacked.”

During the conference, David from the Global Black Economic Forum announced his group has convened a new council of 13 civil rights organizations to fight back against the conservative challenges, including the U.S. Black Chamber of Commerce, the NAACP and Urban League. The new group — the Council for Economic Opportunity and Social Justice —will work collaboratively “because we cannot sit back while we see a rollback of our rights and our protections,” he said.

The lawsuit against Fearless Fund challenges a program awarding $20,000 small business grants to Black women, alleging it violates the Civil Rights Act of 1866. Blum has said the Fearless Strivers Grant Contest is “racially exclusive, thus violating our nation’s civil rights laws.”

Abigail Fisher, who sued the University of Texas when she was not offered a spot at the university’s flagship Austin campus in 2008, with Edward Blum of the Project on Fair Representation, speaks at a news conference at the American Enterprise Institute in Washington on Monday. The U.S. Supreme Court ruling on affirmative action in higher education will have “no impact” on the University of Texas’ admissions policy, school president Bill Powers said Monday, noting UT will continue to use race as a factor in some cases.

Credit: Charles Dharapak

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Credit: Charles Dharapak

Fearless Fund has not been chilled. The grant program at the center of the Alliance’s lawsuit is continuing business as usual, accepting applications through the end of September.

In a recent legal filing, the fund alleges that the Alliance lacks standing to file the lawsuit and the three anonymous white and Asian women business owners the Alliance says it is representing can’t show how they are harmed by not being eligible for the grant.

In its response to Fearless’ claims, the Alliance noted the VC firm changed some of the fine print for the grant program after it was sued. Fearless had already disclosed taking out the word “contract,” asserting it was just to represent the grant program more accurately as a charitable gift, but the Alliance alleges the changed language is to get around one of its central claims.

On Sept. 26, both sides will argue their cases as U.S. District Court Judge Thomas Thrash Jr. weighs whether to preliminarily bar Fearless from enforcing the racial eligibility criteria for the grant program.

Supporters rally

Before the Alliance’s lawsuit, Fearless was a relatively small player in the venture capital world. It raised a $25 million Fund I and has raised at least $16 million for its Fund II, according to a Securities and Exchange Commission filing from May. Over the past four years, the firm has made investments in more than 40 companies founded by Black, Latina and Asian women.

But that’s a small drop in the bucket of VC funding nationally, which has totaled more than $86 billion in 2023 alone, not including certain corporate investments, according to Crunchbase. So far this year, less than 1% of that sum has gone to Black-founded companies.

Historically, Black women entrepreneurs receive a fraction of what other founders get. Between 2009 and 2017, only 0.0006% of VC funding went to businesses started by Black women, according to nonprofit advocacy group Digitalundivided.

Fearless Fund has emerged as a symbol of modern-day civil rights struggles and has received a wave of support from other organizations and the public.

Shortly after being sued, Fearless launched a site where people can sign a petition, give donations, buy merchandise or get early bird tickets to the fund’s next VC summit. Over the past month, the group has gotten more than $25,000 in donations as of Friday morning, with a goal of raising $100,000.

Though the fund’s legal team is providing services pro bono, there are extra costs that the donations can help cover, like increased travel for the founders to court appearances and meetings.

Shila Nieves Burney is the founder and managing partner of Zane Venture Fund, an Atlanta-based firm focused on investing in underrepresented founders. The lawsuit targeting fellow Black women VCs shocked her, and she feared she needed to adjust her business.

She teamed up with two other Black women VCs from around the country to spearhead their own petition condemning the lawsuit. More than 70 individual venture capitalists joined the petition and so far, it has received more than 1,800 signatures as of Friday, though the goal is 2,500.

Nieves Burney and her colleagues said they want to leverage the help of unnamed “influential people” who have offered support.

“We’re trying to protect other Black women. We’re also asking others to protect us,” she said.

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